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Economy in Brief

Mortgage Applications Off
by Tom Moeller May 31, 2006

The total number of mortgage applications fell another 1.9% last week on the heels of the prior week's 6.0% decline. The weakness dropped the average level in May 2.2% below April and 30.0% below last June.

Purchase applications fell another 0.2% w/w after the 7.1% w/w drop the prior week. That lowered the May average 0.8% versus April and 17.5% versus last July.

During the last ten years there has been a negative 80% correlation between the interest rate level on 30-year financing and purchase applications while during those years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.

A 4.8% w/w drop in applications to refinance added to the 4.3% decline during the prior week. That lowered the May level 4.1% below the April average which fell 4.1% from March. The May level was 43.8% below last June.

The effective interest rate on a conventional 30-year mortgage backed up two basis points to 6.86% and left the May average at 6.86%, up sharply from the 5.81% low last June. The rate on 15-year financing was stable at 6.52%. Interest rates on 15 and 30 year mortgages are closely correlated (>90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.

The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site here.

Inversion, a speech by St. Louis Federal Reserve Bank President William Poole, can be found here.

MBA Mortgage Applications (3/16/90=100) 05/26/06 05/19/06 Y/Y 2005 2004 2003
Total Market Index 541.9 552.6 -23.6% 708.6 735.1 1,067.9
  Purchase 395.5 396.4 -14.5% 470.9 454.5 395.1
  Refinancing 1,409.0 1,480.5 -34.2% 2,092.3 2,366.8 4,981.8
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